Articles
Corporate tax in Dubai – 9 months 9% Corporate Income Tax
Corporate tax in Dubai – 9 months 9% Corporate Income Tax
26/03/2024 dr Anna Maria Panasiuk - Wealth Advisor

Today, Dubai is observed by us as one of the Emirates where you can live and not pay crypto tax. On the other hand, Dubai stands out among Middle Eastern countries in terms of tax reforms. The United Arab Emirates (UAE) has recently implemented regulations on excise tax, value-added tax (VAT) and economic substance. We currently have an income tax introduced at the federal level. Please note that the tax changes took place starting from October 2017, through January 2018, April 2019, to inform the international community in December 2022 about the plans to introduce business income tax (as it was then defined) in the Emirates – corporate tax.

At the moment, UAE income tax applies in all Emirates and to all business and commercial activities, with some exceptions. What does this mean for people planning to move to the United Arab Emirates and how does it relate to crypto taxation in the UAE?

How much income tax do we pay in the United Arab Emirates?

On 1 June 2023, the Federal Tax Authority (FTA) passed regulations, which introduced a 9% corporate tax rate for income above 375,000 dirhams in Dubai and other Emirates. Income below this limit will not be taxed, which is how it has been so far. The regulations were applied starting from the first fiscal year after that date, that is, for most entrepreneurs from 1 January 2024. 

Source: https://taxsummaries.pwc.com/united-arab-emirates/corporate/taxes-on-corporate-income

Do individuals pay corporate tax in the Emirates?

Despite its somewhat misleading name, the corporate tax covered not only companies based in the United Arab Emirates, but also entrepreneurs conducting sole proprietorship. In fact, virtually all taxpayers who provide business activity have been thrown into the “bag” with the concept of corporate tax.

Are there any tax reliefs for corporate taxpayers?

The new law provides tax relief for small businesses. A person who is a tax resident may choose to be treated as having no taxable income if the revenues for the relevant and previous tax period do not exceed AED 3 million (or approximately PLN 3 million) in the tax year. At the moment, this relief is valid until 31 December 2026. 

What about Free Zone Companies?

The UAE government has confirmed that companies registered in free zones will still be able to benefit from preferential taxation at the rate of 0%. However, the use of such a benefit will require a detailed audit of the company’s operations. It will have to meet the requirements as to the type of activity conducted, its location and any other requirements stipulated by the conditions of functioning in a given free zone. Operating activities, such as catering or hotel management, which are typical for companies operating outside free zones (Mainland), will not be allowed.

Any failure to meet the conditions for free zone companies to be able to use the 0% rate will result in an obligation to pay tax at the 9% rate.

As a side note, it should be added that regardless of meeting the conditions for taxation at the 0% rate, each of the free zone companies will have to submit a corporate tax registration. Therefore, it is an additional accounting obligation that will be incumbent on the company founded in Dubai.

When should companies be registered for income tax (corporate tax)? 

The FTA has also adopted regulations, effective 1 March 2024, concerning deadlines for companies to register for corporate tax.

Depending on the month in which the entity obtained a license to operate in the United Arab Emirates and the functioning fiscal year, specific deadlines have been established for the registration application mentioned above. The first of the aforementioned deadlines expires on 31 May 2024 and by that date the first entities will be required to submit the said application. According to the established fiscal year, subsequent dates will be at the end of June, July, etc.

It should be pointed out that a sanction of 10,000 dirhams will be imposed for failure to comply with the obligations mentioned above.

What about dividends (of the company)? 

Companies in the Emirates may use the so-called participation exemption. Participation exemption covers dividend payments between a company in the United Arab Emirates and a foreign company. That is, along the lines of European solutions, if the conditions are met, in terms of, among other things, the proportion of shares held (a minimum of 5% or shares worth a minimum of 4,000,000 dirhams) and the holding period (a minimum of 12 months of holding the shares), and the company receiving the dividend is the actual recipient, it will still be possible to use a similar solution for dividend transfers between EU companies.

Companies registered in the UAE will therefore continue to be able to be part of corporate vehicles aimed at properly structuring their business model without the threat of potential double taxation of profit transfer.

And how does the global minimum tax relate to this?

The Ministry of Finance of the United Arab Emirates declared its cooperation with the Organization for Economic Cooperation and Development in this regard, confirming the understanding of how important it is for the minimum 15% income tax rate to take effect globally. This may mean that the 9% income (corporate) tax is not the end of tax changes in the Emirates. Although the Ministry of Finance confirmed that such a tax will certainly not be implemented in the UAE in 2024, let us look closely at the directions of changes in the coming years and make reasonable decisions about possible relocation to the UAE.

So after the introduction of corporate tax, is it still worth moving to Dubai? 

Despite the changes, Dubai is still a great place to live and do business. The corporate tax rate of 9% is still much lower than in most countries in the world, and the system of exemptions, exclusions and reliefs (led by the Free Zone Company) makes the tax still relatively low or nonexistent. The introduced changes will only result in the need to attach a little more importance to the analysis of a given structure in terms of its efficiency as well as more accounting and formal obligations. The approach of the United Arab Emirates tax authorities to the new obligations is also not yet known. This is because practice in this regard will only begin to take shape with the next few months of the new tax regime. 

And what does taxation of crypto income look like?

Currently, there is no personal income tax in the United Arab Emirates. Therefore, capital gains tax is not imposed on natural persons who are citizens or residents of the United Arab Emirates. 

This also applies to your crypto assets, which are exempt from taxation regardless of whether it is an occasional exit to FIAT currency or active trading in your crypto wallet.

Interesting facts about Dubai

  • According to statistics, Dubai is one of the safest places in the world;
  • Public display of affection and externalization of any emotions is not welcome;
  • The distance between the ends of Dubai reaches up to 70 km;
  • Sunday is a working day in Dubai – the weekend lasts from Thursday evening to Saturday;
  • In the Dubai metro there are carriages intended exclusively for women with children – violation of this order may result in a fine;
  • Dubai is home to the world’s largest shopping mall, The Dubai Mall. Its area is 112.4 ha.
Anna Maria Panasiuk ×